LATENCY AND CONVERSION

The marketing implications of Latency and Conversion are several and are related directly to the customer's Life Stage.

First, you should market more often to high Frequency customers in Life Stage Two and Three because they have higher Conversion Rates and can absorb more marketing. Increasing your marketing to these customers nearly always generates more sales revenue from them. However, most companies under-market their high Frequency customers and over-market those with low Frequency. This practice results in wasteful marketing and a failure to maximize sales revenue.

High Frequency customers in Life Stage Two and Three are generally only interested in two kinds of products from your company; consumables that they need on a recurring basis, and new items that they haven't already purchased. Be sure to market accordingly.

Second, you should save your best price incentives for high Frequency customers with high negative Expectancy, i.e. customers in Life Stage Three. Increasing your incentives to these customers nearly always generates more sales revenue from them. Once again, most companies under incentivize their negative Expectancy customers and over incentivize those with positive Expectancy. This practice also results in wasteful marketing and a failure to maximize sales revenue.

Third, treat Stage One customers as a special case. These new customers don't need more frequent marketing or more incentives. Rather they need marketing that is more informational. Specifically, they need marketing that features your best selling products and instructions on how to  use them. But it is important to get your marketing to them early in their lifecycle while they are still in Stage One. Once they migrate to Stage Four, their responsiveness declines sharply.

And finally, be willing to reduce your marketing to customers in Stage Four, especially those with very high negative Expectancy. A good rule of thumb is to not market to Stage Four customers if their negative Expectancy is more than twice the average Latency period for that order level.

For instance, if Latency is 146 days, only market to customers whose negative Expectancy is still less than 292 days. Eliminating marketing to customers in Stage Four with negative Expectancy over 292 days will have nearly no effect on sales revenue but will reduce marketing expenses considerably. The savings can either be kept as increased Profit or reinvested into customer Acquisition.